Short Straddle Hedging using Underlying
- Thread starter belmisof
- Start date
Hello thanks for the answer! What do you mean by the UL sorry?
Does an appropriate short straddle hedging on 1 or 2 days to maturity be done using gamma scalping concepts? I must be certainly wrong or maybe very naive but can it be done "simply" by tring to be long above the strike or short below it on the underlying for the same notional?
Quote from spindr0:
UL = underlying
Yes, appropriate short straddle hedging on 1 or 2 days to maturity can one be using gamma scalping concepts.
Yes, it can be done "simply" by tring to be long above the strike or short below it on the underlying for the same notional?
A guy on a french forum told me that the way he hedges a short straddle is not by hedging the UL because it can be difficult and costly in case the market goes up and down the strike.
He said instead that he delta hedges the straddle and that if the market goes up he goes long a little put in case of a wide swing.
Sounds good to me, what do you guys think?
PS: delta hedging a straddle is as difficult as hedging the whole notional in case the market goes up and down, so where is the point?
Quote from belmisof:
PS: delta hedging a straddle is as difficult as hedging the whole notional in case the market goes up and down, so where is the point?
The point is you are Dynamically Hedging, it might look like churning the account but Dynamically Hedging sounds so much better. More info on Dynamically Hedging is on this thread: Short strangles on stocks
Quote from belmisof:
A guy on a french forum told me that the way he hedges a short straddle is not by hedging the UL because it can be difficult and costly in case the market goes up and down the strike.
He said instead that he delta hedges the straddle and that if the market goes up he goes long a little put in case of a wide swing.
Sounds good to me, what do you guys think?
PS: delta hedging a straddle is as difficult as hedging the whole notional in case the market goes up and down, so where is the point?
It works if the stock swings back. As his buying back his put will have been a good trade. What about if the stock continues to rally. It's similar to delta hedging with stock except he's also buying some local gamma back as well and paying more in transaction costs (per unit delta anyway).
Thank you for the answer. After trying it I believe that staying delta neutral causes less losses than playing with the notional.
The only fact I'm not sure about is how often do I need to intervene to remain deltra neutral (1 day to maturity, USDZAR), every 50 pips difference for example?
The only fact I'm not sure about is how often do I need to intervene to remain deltra neutral (1 day to maturity, USDZAR), every 50 pips difference for example?